Macquarie joined the chorus urging caution over cocoa prices
building on this week's 2013 highs even as Asian processors forecast a continuation of weak
demand for powder from chocolate groups already believed to have high inventories.

Macquarie said that cocoa futures were for now "fairly
priced" given the selling likely being undertaken by Ghana and Ivory Coast, the
top two producing countries, but against a backdrop of some harvest concerns.

"There should be some consolidation from here on," Macquarie
analyst Kona Haque said.

Earlier this week, Commerzbank also warned against betting
on tight supplies, while Archer Daniels Midland, unveiled a slide into the red
in cocoa processing, said that strong North American grindings data reflected a
rise in capacity rather than a rise in underlying demand.

'Demand for powder not
big enough'

Separately on Friday, the Cocoa Association of Asia flagged
another caution to cocoa bulls, saying that a drop of 10.8% to 140,062 tonnes
in the Asian cocoa grind in the first quarter of the year was not a one-off.

The data will show a year-on-year decline "simply because
the demand for cocoa powder is not big enough for grinders to offer it".

The Asian cocoa powder market is being undermined by the
hangover of a jump in prices from some about $1,000 in 2009 to $6,000 a tonne
last year, fuelled by a hoarding spree which - with prices now collapsed back
to $2,200 a tonne – has left many in the industry with high-priced inventories.

The decline in powder values has prompted processors to
raise prices of cocoa butter, the other major product of cocoa grinding, to
support margins.

But "butter has hit the top", Mr Tan said adding that "there
will be resistance for it to go higher".

World grindings to
rise

Macquarie, nonetheless, also advised against overdoing gloom
on cocoa prices, given the potential for higher Asian butter prices to support
margins, and underpin processing volumes, in other regions too, such as Europe.

European grinders also look set to benefit from a "sharp
fall" in processing volumes in Ivory Coast itself, where a minimum price of 725
CFA francs per kilogramme was squeezing margins.

"Having already seen their margins squeezed by higher prices
for the main crop, to which are added the costs of transporting beans to the
coast, and a change to the export tax regime introduced in November, grinders
are reluctant to buy cocoa from Ivorian farmers for processing," Ms Haque said.

World grindings overall were forecast to rise 1.8% in
2012-13 and 2.2% next season.

Rally to return?

Furthermore, prices may get a lift from a reduction in sales
by Ghana and Ivory Coast, which may already have sold forward 40-50% of its
2013-14 crop.

"At today's prices of over $2,400 a tonne, we expect more origin
selling, which will help correct prices in May.

"But what this also implies is pressure from origin sales in
the second half of the year will be reduced."

A drop in origin selling, coupled with higher grindings, "should
see the path of least resistance [for prices] move upwards from the third
quarter onwards".